Nonfarm payrolls declined by 92k in February, well below the consensus forecast calling for a gain of 55k. Revisions to the two prior months subtracted a total of 69k from the previously reported figures, with the bulk of the revisions concentrated in December.
- Smoothing through the volatility, nonfarm payrolls have averaged just 6k per-month over the last three months, slightly below the prior twelve-month average of 24k.
Private payrolls fell by 86k, following a gain of 146k in January, with the bulk of the pullback coming from health care & social assistance (-18.6k after adding 116.4k in January). However, part of the reversal in health care (~37k) reflected a strike among offices of physicians. Job losses were also seen in weather-sensitive sectors like construction (-11k) and leisure & hospitality (-27k), though manufacturing (-12k), information (-11k) and professional & business services (-5k) also saw modest declines.
- Federal job cuts appear to be slowing, as the sector shed just 10k jobs last month, fewer than the 18k averaged over the prior three months.
In the household survey, an increase in the number of unemployed (+203k) offset stagnant growth in the labor force – pushing the unemployment rate up to 4.4%.
The household survey also included new population controls to better align with the Census Bureau estimates. The revisions were implemented as of January 2026, but the historical data prior to 2026 were left unchanged. Civilian population was revised lower by just 306k. But because the adjustment proportionally shifted the labor force, unemployment and employment levels, January’s unemployment rate was kept unchanged at 4.3%.
Average hourly earnings (AHE) rose 0.4% month-on-month (m/m), matching January’s gain. On a twelve-month basis, AHE ticked up to 3.8%.
Key Implications
A big miss on employment for February, with private payrolls recording its sharpest decline since December 2020. However, some of the pullback can be attributed to health care services, where job growth was impacted by an ongoing strike and comes on the heels of an unusually strong gain in January. Moreover, hiring activity was also notably weak in weather sensitive sectors, like construction and leisure & hospitality – suggesting last month’s poor weather conditions may have helped to restrain hiring. And while the unemployment rate ticked higher, the broader U-6 measure, which includes individuals working part-time for economic reasons, fell to a seven-month low of 7.9%.
Bigger picture, this morning’s release doesn’t fundamentally alter our view on the labor market. From a policy perspective, the bigger threat to the Fed’s dual mandate has shifted back to price stability. Core measures of inflation remain stubbornly elevated with this week’s escalation of the Iran conflict adding further upside risk amid the spike in oil prices. Fed futures aren’t fully pricing in the next rate cut until September and there are doubts about whether there will be a second this year – with a total of 44 basis points of easing priced by year-end.
